This real estate agent learned the importance of disclosure the hard way. Even if you think your buyers have all the information needed to make a decision, it’s still vital to disclose everything you and the sellers know about the property.
Situation
A real estate agent was given the opportunity to list and sell a picturesque historic residence surrounded by fields of wildflowers with views of a lake and mountain range. This property was located on a tourist road linking the town center and an interstate highway.
Once this beautiful home was advertised in the Multiple Listing Service (MLS), it instantly garnered tremendous interest, but no one had a serious offer. Eventually, the property was sold to an out-of-state couple who planned to spend their retirement years at this property where they could ski in the winter and golf in the summer. They believed they had found the ideal home in the ideal location.
Problem
It was well known in the community that a local developer had plans to construct a 24-hour storage facility behind the property along with an access road that hugged the property’s boundary line.
Mistake
The buyers were frequent visitors to the area and had become friendly with local merchants in the antique furniture business. So, when the agent showed the property to the buyers, he assumed the buyers already knew about the proposed storage facility and access road.
Result
Approximately one year after the buyers closed on their dream home, the developer began construction. It only took about four months for the wildflowers to be replaced with storage buildings and blacktop, and the once quiet evenings were interrupted with noisy trucks and blinding spotlights.
The buyers were quite unhappy and sued the real estate agent and seller alleging that they failed to disclose the proposed development, claiming it created both noise and light pollution and led to diminution in value. The seller followed with a cross-claim against the agent alleging that the agent should have protected his interests with proper disclosure, arguing that he never met the buyers until the closing.
The case was resolved after the seller reluctantly agreed to buy back the property if the agent paid a six-figure settlement to be shared by him and the buyers.
Prevention
The agent’s incorrect assumptions led to a rather significant settlement and substantial damage to his reputation. This case is a textbook example of where a claim could have been avoided if the agent had just had the seller disclose the proposed development in writing.
Written disclosure of material defects or potential changes in properties should be standard operating procedure when conducting real estate transactions. You will inevitably minimize your exposure to errors and omissions claims while protecting your good name and building a foundation for long-term success.
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The purpose of this article is to inform and insulate real estate professionals from potential monetary claims and professional grievances. The fact patterns are from actual claims against real estate agents. While the author is an experienced claims representative, the opinions expressed herein are general in nature, not fact nor state specific; and therefore, should not be taken as a substitute for legal advice from an attorney licensed in your state. This article was produced in conjunction with AXA XL and is not to be taken as legal advice.